New Study: Startup Job Creation Collapses

Hudson Institute

WASHINGTON—Data from the U.S. Department of Commerce indicates a continued and accelerating collapse of startup job creation in recent years. A new economic policy briefing paper from Hudson Institute, The Collapse of Startups in Job Creation, takes a close look at this troubling trend and concludes that entrepreneurship in the United States is in a parlous state.

Hudson Chief Economist Tim Kane, author of the new study, reports that job creation at newly formed firmsthose less than one year oldhas now skidded to an all-time low. In the aggregate, since 1977, new firms have combined to create a net average of 3 million jobs per year. But in the most recent available annual datafor 2010that figure was an alarming 22 percent off the mean, at just 2.34 million. And the drop-off becomes even starker when the figures are adjusted for population, which continues to rise. During the George H.W. Bush and Clinton years, roughly 11.3 Americans per thousand worked in startup jobs. But the number then fell to 10.8 per thousand during the George W. Bush administration. And it has since fallen still further, and precipitously, to 7.8 per thousand during the Obama administration.

These figures are especially problematic because both the Bureau of Labor Statistics and Kane-authored studies in 2010 affirmed an emerging consensus that startups create essentially all net new jobs. Kane attributes the recent drop-off in startup jobs to more elaborate occupational licensing regimes, higher taxes, labor regulation, and general economic uncertainty.

“Entrepreneurship is down by a third these last four years,” Kane says. “And the decline continued in 2010 and 2011, even after the economy started growing. Without startup job growth, there simply won’t be overall job growth in the United States.”